Togo: Risk Assessment
Country Rating1
Rating: C
Business Climate Rating1
Rating: D
Risk Assessment2
A tentative recovery
The Togolese economy grew moderately in 2010, proportionally just barely more than the growth of the population. Aid granted by international donors enabled the government to support the economy through increased public investment spending, which benefited the construction sector. And cement and clinker export levels improved. But, the weak growth recorded by Togo's international trading partners prevented a stronger recovery. Workers remittances, FDI and exports remained below their pre-crisis levels. And sales abroad suffered, moreover, due to shortcomings in the Togolese economy (power failures, poor management and lack of access to financing). The growth outlook will be somewhat brighter in 2011. The production of phosphate, one of Togo's main exports along with cement and clinker, is expected to benefit from the restructuring of the industry. High prices for agricultural raw materials (coffee, cocoa and cotton) will enable significant increases in producer income and will underpin consumption. And particularly, the inauguration of a 100 megawatt power station, at the end of 2010, will not only reduce the risk of power failures but will also constitute a major source of foreign exchange with 30% of the electricity produced earmarked for export to Côte d'Ivoire. The rise of prices, meanwhile, is expected to be limited to about 2% in 2011, which will benefit economic activity.
Public investment spending trending up
The fiscal deficit has widened as a result of increased investment spending. Formerly among the lowest in Africa, that spending is expected to reach a level in 2011 over twice what it was in 2008 and represent over 7.5% of GDP. The aid provided by multilateral donors is crucial in funding that effort. And, in 2010, the IMF granted an extension of the credit facility provided to Togo in 2008, which now totals 140 million dollars. Since that facility will nonetheless not suffice to cover the entire public sector deficit in 2011, a further extension of the IMF programme has been under consideration. Without additional official aid or additional fiscal revenues, derived, for example, from privatisations, the Togolese government will be forced to make some spending cuts. But, the public and foreign debt profile is much better now than it has been in the past. The debt relief granted to Togo in 2008, 2009 and again in 2010, after it reached the completion point under the HIPC initiative, sharply reduced public foreign debt. Public domestic debt was also lowered thanks to the settlement of arrears due to local creditors.
Higher risks of political instability
Political tensions heightened in 2010 despite the re-election of President Faure Gnassingbé in an election that international observers described as free and transparent. But, the main opposition party - UFC - split into two opposing factions over recognition of the presidential election results. Most UFC members agreed to join the coalition led by the presidential party with a view to forming a national unity government. The dissident party members, which denounced extensive fraud, were expelled from the UFC and have created a new party, the ANC. Its deputies were subsequently expelled from Parliament by the Constitutional Court. They decry abuse of power and the risk of clashes between partisans of the two camps seems high. Political stability and the business climate could suffer in consequence.
Strengths
- World's fourth largest phosphate producer
- Debt cancellations under the HIPC initiative
- Renewed commitment of financial backers since 2008
Weaknesses
- High dependence on hydroelectric power imported from Ghana, vulnerable to weather conditions
- Insufficient investment in education and public health
- Poverty rate exceeding 60%
- Economic growth below potential due to the weakness of some key sectors
- Large current account deficit